Tuesday, February 3, 2009

Laughingstock: Fitch to California-"F2" and S&P Downgrades to "Lower than Louisiana"

Fitch Ratings has downgraded the short-term rating on the State of California's $5 billion 2008-09 revenue anticipation notes (RANs, or the notes) to 'F2' from 'F1'. The downgrade is based on the severe erosion of state revenues and cash resources since note issuance, prompting payment deferrals while the state develops solutions to its deficits...

This is creepy paper:

...In addition, the notes carry a back-up pledge to issue revenue anticipation warrants (RAWs) if necessary. The notes do not carry a GO pledge...

Hmmm. "If we can't pay you in money, we'll give you warrants on anticipated revenue."Today the LA Times reports:

California today was branded the worst credit risk of all 50 states, after Standard & Poor’s cut its rating on the state’s debt because of the budget impasse.

S&P lowered its rating on the state’s $46 billion in general obligation bonds to "A" from "A-plus," citing "the state's inability to reach an agreement on a mid-year budget revision and its rapidly eroding cash position."

Until now, California and Louisiana had been tied for last place, at "A-plus," on S&P’s state ratings list. Most states are rated either "AA" or "AAA."...

...What’s more, S&P warned, "Despite what we consider the state's strong longer-term economic fundamentals, we judge prospects for an imminent or brisk economic and revenue recovery to be unlikely."...MORE

Meanwhile, FT Alphaville has a post headlined:

I.O. Economic Girlie Men

A rather flippant title perhaps for a post highlighting the impending bankruptcy of the government of California (the economy over which said state presides being the eighth largest in the world). But then again, it was the governor himself who characterised the economic naysayers as girlie men back when the times were good. Hey ho....MORE

Remember, the bankruptcy code has no chapter for states. California can be broke, it can be insolvent, it can default but it can't avail itself of bankruptcy protection.Finally, as Oklahoma wrestles with it's own budget issues, the Tulsa World quotes the state treasurer:

..."Overall, we're looking at a 4.4 percent reduction," Treasurer Scott Meacham said Monday afternoon. "Compared to California, which can't even give people their tax refunds, we're doing a lot better."...